United States: FTC Releases Report on Patent Assertion Entities, Calls for Reforms to Reduce Nuisance Patent Lawsuits

The U.S. Federal Trade Commission issued its much anticipated study on patent assertion entities ("PAEs") on October 6, 2016. The report, entitled Patent Assertion Entity Activity: an FTC Study, defines a PAE as "a firm that primarily acquires patents and seeks to generate revenue by asserting them against accused infringers." The report highlights the business practices of PAEs (based on non-public data from 2009 to 2014) and includes recommendations for patent litigation reform. FTC Chairwoman Edith Ramirez praised the report for providing "an empirical foundation for ongoing policy discussions," and said that the report's recommendations "are designed to balance the needs of patent holders with the goal of reducing nuisance litigation." The report provides valuable insights into a key area of intersection between the antitrust and patent laws and proposes concrete reforms that seek to balance the benefits of legitimate infringement litigation against the harms of nuisance suits.

Study Findings

The report identified two types of PAEs using distinctly different business models: "Portfolio PAEs" and "Litigation PAEs." Portfolio PAEs, the FTC found, were strongly capitalized and purchased patents outright. They negotiated broad licenses, often covering hundreds or thousands of patents, frequently without first suing the alleged infringer. These licenses typically netted more than $1 million in fees and royalties. Litigation PAEs, on the other hand, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses. The licenses secured by Litigation PAEs covered a small number of patents and generally yielded total royalties of less than $300,000. The low royalty amounts indicated to the FTC that Litigation PAEs' behavior was consistent with nuisance litigation.

While Portfolio PAEs generated the overwhelming majority of licensing revenue, Litigation PAEs were found to be the far more common type of PAE and generated almost all of the litigation. According to the study, Portfolio PAEs generated licensing revenues of $3.2 billion, which accounted for approximately 80% of reported revenue. Litigation PAEs generated only about $800 million in licensing revenue, yet they accounted for 96% of all patent infringement lawsuits covered by the study. The report also found that 93% of the patent licensing agreements held by Litigation PAEs resulted from litigation, while for Portfolio PAEs that figure was only 29%.

The report examined the types of patents held by PAEs and found that 88% were in the information and communications technology ("ICT") sectors, and more than 75% of those patents were software-related patents. Although PAEs overwhelmingly held ICT and software patents, they asserted those patents against firms in a broad range of industries. The study noted in particular that PAEs frequently targeted members of the "Retail Trade," which includes both store retailers that operate fixed point-of-sale operations and non-store retailers, such as Internet merchants that directly sell products. Since most of the patents asserted by PAEs were ICT patents, the presence of retailers among the targets of assertion activity suggests that PAEs asserted their patents against both manufacturers of the accused products and end-users.

The report also considered whether PAEs were able to make money by mass-mailing so-called "demand letters"; however, the FTC observed an "absence of large demand letter campaigns for low-revenue licenses among the Study PAEs."

To gain a better understanding of how PAE behavior compares with the behavior of other firms asserting patents, the report looked at the wireless chipset sector, examining how reported PAE assertion behavior compared to certain manufacturers and non-practicing entities (NPEs) (who primarily seek to develop and transfer technology). For this study, the FTC obtained non-public data from eight manufacturers and five NPEs.

The wireless case study found that Litigation PAEs and manufacturers behaved differently. Within the study, Litigation PAEs brought far more infringement lawsuits involving wireless patents—nearly two-and-a-half times as many as manufacturers, NPEs, and Portfolio PAEs combined. Litigation PAE licenses involved simple lump-sum payments with few restrictions, if any, whereas the reported manufacturer licenses frequently included field-of-use restrictions, cross-licenses, and complicated payment terms.

Recommendations for Legislative and Judicial Reform

The FTC's report recommends legislative and judicial reforms that seek to balance the benefits of legitimate infringement litigation against the harms of nuisance patent litigation (i.e., cases where the defendant settles in order to avoid the cost of litigation despite the weakness of the plaintiff's case on the merits). On the one hand, the FTC recognizes that infringement litigation can play an important role in protecting patent rights. On the other hand, nuisance litigation can tax judicial resources and harm competition by increasing the costs of innovation and hindering or inhibiting market entry by start-ups and small firms.

Seeking to balance the benefits of legitimate infringement litigation against the harms of nuisance suits, the FTC proposes reforms to:

  • Address the imbalances between the cost of litigation discovery for PAE plaintiffs and defendants;
  • Provide the courts and defendants with more information about the plaintiffs that have filed infringement lawsuits;
  • Streamline multiple cases brought against defendants on the same theories of infringement; and
  • Provide sufficient notice of these infringement theories as courts continue to develop heightened pleading requirements for patent cases.


The FTC's report confirms and provides empirical support for much of the anecdotal evidence already known by entities that have dealt with PAEs. But what impact the report may have on the PAEs' business models and litigation tactics, if any, remains to be seen. 

The report raises a number of proposed reforms worthy of further discussion. For example, to address the discovery burden and cost asymmetries in PAE litigation, the FTC proposes amending the Federal Rules of Civil Procedure to require early disclosure of asserted claims and infringement and invalidity contentions. The report also advocates for measures that would limit discovery before preliminary motions and provisions to ensure that such motions are decided in a timely manner. The FTC also urges courts to require more particularity in complaints brought by PAEs so that defendants can have sufficient information to evaluate the nature and scope of their alleged infringement. The FTC's recommendations are largely in line with legislation introduced in both the House and Senate, but that stalled in recent months. The success of similar proposals in the future will depend heavily on the efforts of the FTC and other interested parties to effect change in the patent litigation landscape.

It will also be interesting to see if the report leads to stepped up antitrust and false claims enforcement efforts against PAEs by the FTC. To date, the FTC has brought only one enforcement action against a PAE. In 2014, the FTC charged a PAE with sending false and deceptive letters to thousands of businesses around the United States in an attempt to sell licenses to its patents. According to the complaint, the letters falsely claimed that many other companies had already agreed to pay thousands of dollars for licenses and that the PAE would sue recipients of the letters if they did not respond. The PAE settled the FTC's charges by agreeing not to make similar deceptive representations when asserting patent rights. Businesses will be watching to see if the FTC uses its findings from the report to bring more cases against PAEs, particularly cases not involving outright deception.

Similarly, it is an open question whether the report will lead private parties to consider antitrust claims against PAEs, which may help to even the imbalance in litigation burdens. Although the report spotlights some potential competitive harms of PAE activity, antitrust claimants would still have to establish all of the elements of an antitrust claim and defeat potential immunity defenses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.